November 2009 Paper 11 1 C 4 + 11.5 + 13.4 = 28.

9 2 B 31/10 Income Summary 31/10 Balance (prepayment)

Rent Received 3500 1/4 1000 1/7 1/10 4500

Bank Bank Bank

1500 1500 1500 4500

$6000 / 12 months = $500 per month Electricity Balance (prepayment) 1000 Income Summary 18000 Bank 15000 Balance (accrual) 2000 18000 18000 Allowance for Doubtful Debts Balance (closing) 900 Balance (opening) 850 Income Summary 50 900 900 Net debtors = $17 100. Therefore closing debtors $17 100 / .95 = 18000. Allowance for DD at end of year = 18000 17100 = $900 Trade Debtors 23 000 Bank (98%) 56 840 64 000 Discount All (56 840 / .98 = 58000 x 2% 1 160 Balance 29 000 87 000 87 000 Stock should be shown at lower of cost and net realisable value. Cost = $1200 Net realisable = $1700 - $600 = $1 100 Correct entry incorrect account. Suspense General Journal General Journal General Journal Balance 190 Suspense 200 Telephone 400 Purchases 10 Bank 200 Purchases 10 Bank 200 Insurance 400 Suspense 10 Balance Sales . Balance sheet extract (Capital Section) Capital (opening) 15 000 Net Profit 8 000 Drawings (3 000) Capital (closing) 20 000 3000 / 1.2 = 2500 therefore closing allowance for unrealised profit = $500 LIFO no longer examinable in AS syllabus (200 + 150 250) = 100 @ $5 = $500 (LIFO) (200 + 150 250) = 100 @ $6 = $600 (FIFO) Net Assets = capital Balance sheet extract (Capital Section) Capital (opening) 10 000 Net Profit 7 000 Drawings (3 000) Capital (closing) 14 000 Profit to distribute = 3400 900 + 5000 + 20 000 = $27500 Prime cost = all direct costs = 476.2 + (21.5 + 184.3 17.9) = Ordinary shareholders are entitled to all capital and reserves left over after paying liabilities and preference capital therefore: 250 + 320 + 125 = $695

5 6

A C

7 8 9

B A A

10

11 12

C A B D

13

14 15 16

C B A

17

18

19

20

21

22

23

24 25 26

B C D

600 / .25 = 2400 shares on issue 2400 / 3 = 800 new shares issued in rights issue General Journal New balance sheet Bank (800 x .30) 240 Ordinary share capital 600 + 200 800 Ordinary share capital (800 x .25) 200 Share premium 150 + 40 190 Share premium (800 x .05) 40 Retained Earnings 300 Bonus issue does not affect the bank account (one type of equity (reserve) swapped for another type of equity (ordinary shares) Bonus issue will increase number of shares on issue 12000/4 = 3000 new shares now 15 000 ordinary shares Therefore the rights issue will be for 7500 (15000/2) shares x $1.60 = $12000 cash received A reduces bank (current asset) B Increases non-current assets and liabilities C increase in cash more than offsets the decrease in inventory (both are current assets) and so will increase the working capital D increase in bank (current asset) is offset by an identical decrease in inventory (also current asset) A increases inventory (a current asset) therefore increases working capital B reduction in trade receivables is not fully offset by increase in bank due to the discount working capital will fall. C paying trade payables earlier will reduce a current liability and increase working capital D selling a fixed asset will increase bank and therefore working capital A decreasing stock will not affect liquidity (stock excluded from liquidity ratio) B decreased overdraft will improve liquidity (fewer liabilities) C increase in cash will improve liquidity (more liquid assets) D increase in trade creditors will mean more current liabilities Inventory turnover (days) = average stock / cogs x 365 Average stock = (2470 + 2156) / 2 = 2313 2313/12500 x 365 = 68 (67.5) days Dividend = 32 / 2 = 16 cents per share dividend yield = dividend / market price of share = 4% Market price = .16 / .04 = $4 When units produced = units sold there is no closing stock therefore all fixed costs are absorbed in absorption costing and profit will be the same. Semi-variable means cost is partially fixed and partially variable. If production is reduced then the fixed portion is being divided over fewer units so will increase per unit costs. It will be less than 20% because of the reduced variable component from the reduced activity. Total fixed costs = .20c x 200 000 units = $40 000 Breakeven = fixed costs / contribution 40 / (1 - .60) = 100 000 units

27 28

A C

contribution = selling price variable costs

29 30

D D

The closing stock under absorption costing includes (120300 100800) $19 500 fixed overheads that marginal costing does not contain. Stocks increased by 3000 units over the period so the overhead rate per unit = $19500 / 3000 units = $6.50